Preparing for the Eventuality of Bundled Payment Reimbursement

Is there life after fee-for-service? Kenneth T. Hertz, principal consultant of the MGMA Health Care Consulting Group in Englewood, Colorado, believes there is and that it depends on physicians’ ability to adapt to the future. We have, he noted, the best healthcare system in the world, but the cost per person is very high, accounting for $3 trillion per year on healthcare expenditures (18% of the gross domestic product). “Eighty-nine percent of healthcare payments do nothing but encourage high expenditures, high services, and ancillary services, and redundancy,” said Mr Hertz. The goal for 2020 is to go from having 11% of payments based on quality standards (where we are now) to having 20% of payments based on quality indicators (value-based pricing). He warned that “there is no direct path from here to there, and it will be strewn with a lot of bodies.”

The future will involve bundled payments. Any visit to the hospital results in dozens of bills. Patients would prefer to get all of these bills bundled into 1 bill instead. Just as there are currently many types of payment models, so will there be different types of bundled payments.

To learn the costs of care, Mr Hertz cautioned that physicians need to understand every piece that goes into 1 episode of care, including the physicians and non-physician staff involved, the devices used, the drugs prescribed, and facility usage. If you fail to know how many patient revisits you have for 1 episode of care, the payments made by each payer, how much you charge per payer, by patient, by provider—your contracts will fail. If you do not know every piece in the matrix, you cannot agree upon and accept a bundled payment amount.

We must now know how to negotiate with payers and become allies with them. Value-based payments have already begun, even if they have not yet hit individual practices. “It’s all about transferring risk to the provider,” he noted. Physicians need to understand the revenue stream, cost structures, and every aspect of a care plan. To plan for the future, he recommended selling, joining, or leading. All of this should be dictated by the distance of the physician in a practice to retirement, the market, and the principal’s ability to manage risk (data information and episodes of care and cost). Practices must be able to quantify what care is.

The key to bundled care is having a standardized plan. If the owner of the practice does not understand accounts receivable and the drivers and behaviors of fixed, variable, direct, and indirect costs, cost control will be impossible and negotiating fees and contracts will be impossible. Before you plan your budget, you must know the total expenses of your practice, the expenses per day, the cost per patient per year, the number of patients you see in 1 period, and the total number of visits needed to break even (ie, fixed and variable costs). “Change is happening,” he observed, “deal with it. This is all about taking your analytic skills to a new level.”